Power Law Outlier Lab | Canonical

CANONICAL LABS · POWER LAW OUTLIER LAB<br>A venture fund simulator.

Describe a fund — its size, the number of investments, the failure rate, the shape of the right tail — and we run 10,000 simulated versions of that fund.<br>The histogram shows the full distribution of plausible outcomes, not just the headline number on a pitch deck.

If you're an LP<br>Plug in a manager's stated strategy (N, ownership, reserves). Is their projected 3x in the top decile of plausible outcomes, or the median? Use this before the IC meeting.

If you're a GP<br>Show your LPs why your N matters, why concentration discipline matters, and why the right tail is your real thesis. Drop a screenshot in your deck.

If you're curious<br>Click any scenario below. Each one isolates a single counter-intuitive thing the math does that most fund pitches gloss over.

Start with a preset:

Seed

Seed preset. $50M fund, 25 investments, 50% loss rate, fat right tail (α=1.2, cap 500x). Models a concentrated seed strategy in the style of public empirical work (Correlation Ventures, Kauffman).

Series A

Series A preset. $150M fund, 18 investments, 35% loss rate, moderate tail (α=1.5, cap 120x). Tighter than seed, less upside per company, but fewer total losses.

Growth

Growth preset. $400M fund, 12 investments, 15% loss rate, thin tail (α=1.8, cap 30x). The distribution looks almost normal — growth math is not power-law dominated.

Custom

Custom. Your current settings don't match any built-in preset. Tweak any slider and this label appears.

SCENARIO

Fund

Fund size

Fund size. Total dollars committed by LPs.<br>Drives every dollar-denominated number downstream — at the same N and reserves, a bigger fund means bigger checks.<br>Typical seed funds: $30–100M; Series A: $150–400M; growth: $500M+.

$50M

Initial investments (N)

Number of first checks. How many companies you initially invest in.<br>More names = lower variance and a thinner right tail (you'll probably miss the outlier).<br>Concentrated seed funds: 15–30. Index-style funds: 50+.<br>This is the single most consequential portfolio-construction choice.

25

Reserves %

Reserves. Share of the fund held back to follow on in later rounds.<br>Higher reserves = smaller initial checks but more ammunition to defend ownership in winners.<br>Industry default is 30–50%.

40%

Ownership multiplier

Ownership multiplier. Scales every company's outcome multiple by this factor.<br>2.0x = you owned twice as much of every company at exit — what you get from bigger initial checks, lower dilution, or smarter pro-rata defense.<br>Linear effect on fund TVPI.

1.0x

Follow-on strategy

Where reserve dollars go.<br>Pro-rata: reserves split evenly across the portfolio.

Super pro-rata: reserves loaded into your realized winners (top 30% by multiple).

None: reserves returned to LPs at 1.0x, no follow-on.

The concentration choice has a bigger impact on fund TVPI than most LPs realize.

Pro-rata (split equally)<br>Super pro-rata (winners)<br>None (return reserves)

Initial check ≈ $1.2M

Outcome shape

Loss rate

Loss rate. Share of companies that return $0 (total loss).<br>Real empirical ranges: seed 45–65%, Series A 25–40%, growth 10–20%.<br>Higher loss rate doesn't move expected TVPI linearly — the lost dollars come out of the bottom of the distribution, not the top.

65%

Tail thickness (α)

Tail thickness. The shape parameter of the Pareto distribution.<br>Lower α = fatter tail = the rare 100x outlier matters much more.<br>1.1–1.3 = seed-style fat tail; 1.5–1.8 = Series A; 2.0+ = growth.<br>The most consequential slider in this lab — try moving it just 0.2 and watch the histogram redraw.

1.50

Tail cap

Tail cap. Hard maximum outcome multiple for any single company.<br>Sets a ceiling on the right tail to keep the math finite.<br>100–500x is reasonable for seed; 30x for growth.<br>Real outliers like early Uber or Coinbase landed well past 1000x — bump this up to see what that does.

100x

E[per-co multiple] = 3.1x

Fund economics

Mgmt fee

Management fee. Annual fee as % of committed capital, charged for the fund life.<br>Standard 2% × 10 years = 20% drag on gross returns.<br>Lower fees pass through directly to LP net TVPI.

2.0%

Carry

Carried interest. GP's share of profits above 1.0x of committed capital.<br>Standard is 20%. European waterfall is assumed — carry is only paid after LPs receive their full commitment back.

20%

Fund life (yrs)

Fund life. Years over which management fees accrue.<br>Doesn't model exit timing — TVPI is reported as a horizon-free multiple.<br>A 12-year fund pays 24% in fees at 2%; an 8-year fund pays 16%.

10

Simulation

Trials

Monte Carlo trials. Number of simulated funds.<br>10,000 is enough for stable median/quantile estimates; crank to 100,000 for sharper p99.<br>More trials = more confidence, slower simulation.

10,000

Rerun

Re-runs the Monte Carlo simulation with the current parameters. Useful after changing trials, or to refresh the random draws and see how stable the result is.

Reset

Returns all controls to the...